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Three Legal Decisions Bolster
Richard C.W. Hall, MD
Court cases in Arizona, California, and Florida have
resulted in rulings that have assisted physicians in providing better
care to their patients by maintaining the doctor-patient relationship,
which is so often disrupted in managed care systems. The cases described
here suggest that physicians should not be forced to make decisions
against their patients' best interest, that physicians are responsible
for their behavior, and that they need to stand up for their patients.
MCO Medical Director Held Responsible for "Medical Decision"
Murphy v Board of Medical Examiners
In an important suit, Murphy v. Board of Medical Examiners
(1), the court decided that John F. Murphy, Medical Director for
Blue Cross/Blue Shield of Arizona, made a "medical decision"
when he overruled a patient's physicians and denied precertification
On December 29, 1992, Dr. Murphy refused to pre-certify a patient's
laparoscopic cholecystectomy (gallbladder surgery). Dr. Murphy opined
that the surgery was "not medically necessary." His decision
contradicted the advice of the patient's surgeon and her referring
physician, Dr. Johnson. The surgery was performed despite Blue Cross's
refusal to pre-certify.
Dr. Johnson registered a complaint with the Board of Medical Examiners,
and in February of 1993 the Board sent Dr. Murphy a copy of Dr.
Johnson's complaint and requested a response. Dr. Murphy returned
the letter, questioning whether the Board of Medical Examiners could
review his action because he was "not involved in patient care
and not involved in the practice of medicine." He provided
the requested information "as a courtesy" and to avoid
"a claim of unprofessional conduct." In October 1993,
the Board ordered an investigation and subpoenaed Blue Cross documents
concerning 20 cases in which Dr. Murphy denied pre-certification.
Blue Cross objected to the subpoena and said that the Board lacked
jurisdiction because Dr. Murphy worked for an insurance company
and that he was not practicing medicine.
The Court ruled that although Dr. Murphy was not engaged in the
traditional practice of medicine, to the extent that he renders
medical decisions his conduct is reviewable by the Board of Medical
Examiners. The Court found that Dr. Murphy substituted his medical
judgment for that of the patient's physicians and determined that
the surgery was "not medically necessary." The Court ruled
that such decisions were not insurance decisions but, rather, medical
decisions because they required Dr. Murphy to determine whether
the procedure was "appropriate for the symptoms and diagnosis
of the condition," whether it was to be "provided for
the diagnosis, care or treatment," and whether it was "in
accordance with standards of good medical practice in Arizona."
Patient Care Supersedes Profits
The Self Case
In April 1998, a San Diego jury awarded Thomas Self, M.D., a pediatrician,
$1.7 million after finding that he was fired in a malicious fashion
and that he had been defamed. As reported in the Orlando Sentinel
(2), Dr. Self sued the medical group for which he worked after
he had been discharged. He contended that he was fired because he
spent too much time with patients, ordered too many tests that did
not generate profit, and refused to perform unnecessary surgeries.
The jury agreed with Dr. Self.
The Sentinel noted that this was the first verdict of its
kind in the country, setting an important precedent when Dr. Self
successfully argued that the medical company's emphasis on the bottom
line precluded doctors from providing good medical care. Many observers
have suggested that this case sends a signal of the public's growing
unease about the disproportionate balance between corporate profits
and the medicine that is delivered to patients.
The basis of the Self suit was a 1993 California statute that prohibited
medical groups and MCOs from retaliating against physicians for
giving patients appropriate care. About half the states in the country
have enacted similar laws.
Medical Necessity Defined in Medicaid Case
Tallahassee Memorial v Cook
A constant source of tension that exists between physicians and
MCOs is the disallowance of care as "not medically necessary."
An important decision recently rendered in Florida, Tallahassee
Memorial Regional Medical Center v. Cook (3) addresses
In this suit, hospitals that provided inpatient psychiatric care
for adults and adolescents under the Florida Medicaid program brought
an action against the Florida Agency for Health Care Administration
(AHCA), challenging AHCA's failure to provide reimbursement for
medically necessary outpatient psychiatric services to adolescents
in inpatient settings.
The U.S. District Court for the Northern District of Florida entered
a judgment for the hospitals. AHCA appealed. The Court of Appeals
held that the Boren Amendment to the Federal Medicaid Act required
AHCA to reimburse inpatient hospital providers who provide lower-level
care to patients once medical necessity for inpatient acute care
ceases but where appropriate required alternative care settings
for the patient are unavailable.
In the original opinion, the trial judge addressed the peer review
organization's denial of medical necessity for suicidal patients
subsequently admitted to the hospital and the defined federal criteria
in the Eleventh Circuit (Florida, Georgia, Alabama, and Mississippi)
for "medical necessity." The judge ruled that medical
necessity was determined by a two-pronged test of facts in the circumstances
surrounding each case. In this case the court found,
1) inpatient services during admission and treatment must be consistent
with "appropriate medical care."
2) alternative placements must be considered when ordering inpatient
The trial judge defined "appropriate medical care" as
services that are delivered to alleviate a harmful medical condition.
"Services alleviate a harmful medical condition if they are
reasonably calculated to prevent, diagnose, correct, cure, alleviate,
or prevent the worsening of conditions in the recipient that endanger
life, cause suffering or pain, result in illness or infirmity, threaten
to cause or aggravate a handicap, or cause physical deformity or
malfunction." The judge's definition of "appropriate care"
provides important guidance to physicians.
In speaking to the use of illness intensity/severity/discharge
criteria used by reviewers of MCOs, the judge noted that the criteria
are general guidelines for determining the medical necessity
of inpatient services but do not determine medical necessity. He
noted that these criteria are "not binding on the treating
physician," and that the treating physician can override them
"based on his or her clinical judgment concerning a particular
recipient." The clinical judgment to override these criteria
must be consistent with. appropriate medical care (3) (4).
The Murphy case suggests that managed care medical directors, at
least in Arizona, are accountable to their Board of Medical Examiners
when they inappropriately practice medicine by denying pre-certification
for care. The standards for care are based upon the "reasonable
person," "reasonable physician," "community
standard" as determined by the physician seeing a patient who
is acutely ill. The Self case represents the tip of an increasingly
visible public outcry against the abuses of managed care. The trial
judge's ruling in the Tallahassee Memorial Hospital case defines
appropriateness of care, medical necessity, and the tests that should
be used to determine both. This test sets a standard to be applied
against the criteria often applied by MCOs and is important for
physicians to remember when responding to denials of "medical
necessity" from managed care companies.
1. Murphy v Board of Med. Examiners, 949 P.2d 530 (Ariz.
Ct. App. 1997).
2. "Doctor's Victory Revives Proponents of Quality Care, Orlando
Sentinel, April 26, 1998, p. A-21.
3. Tallahassee Mem'l Reg'l Med. Ctr. v. Cook, 109 F.3d 693
(11th Cir. 1997).
4. Orlando Gen. Hospital v Department of Health and Rehabilitative
Servs., 567 So. 2d 962, 965 (Fla Dist. Ct. Appl. 1990).
Published in the Sept/Oct 1998 issue of the American Psychiatric
Association's Psychiatric Practice and Managed Care.
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